Malawi tax collector loses case against Eastern Produce

For a copy of the judgment: https://www.dropbox.com/sh/8v1vx14n3hrgky4/AABzcqbi3yExqT14DGRqylDNa?dl=0

BY FESTON MALEKEZO:
The High Court in Blantyre has ruled in favour of the multi-national Eastern Produce Limited in a K1.6 billion transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... case with Malawi Revenue AuthorityTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... (MRA). Eastern Produce has agricultural and horticultural operations in Kenya, Malawi and South Africa and is part of Camellia Plc Group Company.
The tax collector conducted a tax auditA Tax Audit is a comprehensive review or examination conducted by a government’s tax authority. The primary objective of a tax audit is to verify the accuracy of a taxpayer's financial records, tax returns, and overall tax compliance. This process ensures that the reported income, expenses, and deductions align with the applicable tax laws and regulations. Tax audits serve as... on the multi national company from October 13 to 31, 2014 and among others assessed that in 2009 the company had tax arrears of K97, 394, 224.

“Following the audit, the respondent, issued notices of amended assessments for income taxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... dated 3 November 2015, as follows; for year of assessment ended June 2010, an additional tax charge of K109, 388,463. For year of assessment ended June 2011, an additional tax charge of K120, 801, 195. For year of assessment ended June 2012, an additional tax charge of K163, 385, 788,” reads part of the judgement pronounced in court on July 27, 2018 at the principal registry, revenue division of the High Court.

The audit also found out that there was an additional tax charge of K286, 639, 738 for the year of assessment ending June 2013. It is said that the results of the audit were communicated to the applicant through letters; the first letter dated December 10, 2014 and the last letter dated April 21, 2016 Eastern Produce Limited and MRA had also been meeting of which the last meeting took place in November 2015.

However, Eastern Produce Limited complained to the High Court and applied for judicial review in 2016 of the decision by MRA in respect of the transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... case where MRA made adjustments. Transfer prices are used when individual entities of a larger multi-entity firm are treated and measured as separately run entities. It is also stated by the applicant that the responded also demanded payment of Non Resident Tax in respect of dividends paid by the applicant to its UK based shareholder, John Ingham and Sons Limited.
“It is said that the applicant has made payments in relation to corporate taxes not in dispute of K697, 000, 000. The total additional corporate taxCorporate Tax refers to the tax imposed by governments on the income or capital of corporations. Corporations, considered separate legal entities, are taxed on their profits, meaning the income generated from their operational activities, investments, and other financial undertakings. This tax is generally a key revenue source for governments, helping to fund public services, infrastructure, and other essential functions. The... on demand is K777, 609, 408 which is being disputed and the Non Resident Tax on demand is estimated to be K300, 000, 000,” reads the judgement in part.

Eastern Produce Limited through its lawyers, Maziko Sauti-Phiri of Anchor Mooring Partners Legal Consultants and Attorneys and Henry Ngutwa of Odeide Tax Lawyers challenged MRA’s illegality and irrationality whilst it performed a public function.

“The decision and proceeding by MRA to use OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... (Organisation for Economic Cooperation and Development) guidelines whilst performing transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... analysis and as a basis for effecting amendments to tax assessmentsA tax assessment is a formal determination made by a tax authority to calculate the amount of tax an individual or entity owes. It is a comprehensive evaluation based on financial records, declared income, expenses, deductions, and any applicable tax laws or regulations. Tax assessments may arise from routine self-assessments by taxpayers, or they may be conducted by revenue authorities... was illegal. An order similar to an interim injunction
staying the implementation or assessment pending the determination of the substantive judicial review,” read some of the reliefs Eastern Produce Limited sought from the court.

However, Judge Joseph Chigona agreed with the applicants by declaring that OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... guidelines are not law in Malawi and that section 127a and taxation (Transfer PricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of...) regulations, were the applicable law. “That the application of OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... guidelines at the expense of the Taxation (Transfer PricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of...) regulations is illegal and Ultravires the respondent’s powers under the Taxation Act,

“I order therefore the applicant within the next 14 days, to submit to the respondent all the necessary documentation pursuant to section 7 of the regulations, 2009 for the respondent to under a comprehensive analysis of the transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... issues and arrive at an appropriate transfer priceTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... method. The respondent to communicate its decision after 21 days of its receipt of such documentation. Thereafter, the respondent to communicate the correct tax payable by the applicant,” reads the judgment in part.

In reaction to the judgement one of the lawyers representing Eastern Produce Limited Sauti-Phiri simply said ‘the High Court has delivered a landmark decision on transfer pricing’.

MRA was being represented by Chris Likomwa who could not comment on the matter.

MRA Head of Corporate Affairs Stevie Kapoloma, Steve Kapoloma, said the authority will soon make a decision.

“We will make an informed decision after we sit down with our legal director,” he said.